Vermont school taxes anything but simple

If you’re like the rest of Vermont homeowners, when you filled in your Vermont income tax form you also completed form HS 122, the “Homestead Declaration and Property Tax Adjustment Claim.” That’s also known as the property tax rebate or the income sensitivity part of the education property tax.

Last year, 110,000 Vermont homeowners received an income-based reduction in their school property tax bill. That number has fluctuated between 90,000 and 115,000 over the past 14 years but generally about two-thirds of all Vermont homeowners received the property tax adjustment.

In theory, how the property tax adjustment works is pretty straightforward. The state does three things: It sets a base property tax rate on your house and gives each school district a fixed amount of money per student. The total school property tax rate is then increased by any additional spending in your school. If your district spends 30 percent more per student than the fixed amount the state gives for each student then your school property tax rate is 30 percent more than the base property tax. If you earn over $90,000, that formula determines your school taxes. For a family living in a house with a market value of $300,000 and a school tax rate of $1.50 per $100 of assessed property value, school property taxes would be $4,500.

At the same time the state sets a base income tax rate, say 2 percent, to determine the school tax liability for people earning under $90,000. If your town spends 30 percent more than the fixed amount per pupil, your town’s income tax rate would be 30 percent more than the 2 percent base rate, which means the school income tax rate would be 2.6 percent of your income. If you earn $70,000, your school taxes would be 2.6 percent of $70,000 or $1,820 even if you live in the same $300,000 as your neighbor who earns over $90.000.

If you’re with me so far, this fairly complicated discussion is actually the simple description of how your school taxes are calculated. The reality is even more complex.

Take spending per pupil, for example. If your town votes a $4 million school budget at town meeting and there are 200 students in your school, is spending per pupil $20,000? No.

Some spending is counted and some is not. The state excludes a variety of spending such as capital expenditures. It doesn’t count the money put aside for teachers’ retirement, which isn’t even in your school budget even though it is a cost of education (the state picks up the entire tab for teachers’ retirement).

And those 200 students in your school? Some students count more than others so the state may actually count more or less than 200 depending on a variety of factors.

It gets more complicated.

Your house’s appraised value is not the value the state uses to calculate your school taxes. The state has to adjust it to account for differences in appraisals across towns, which is no simple matter. And, of course, if you earn less than $90,000, the value of your house is almost, but not quite, irrelevant to your school tax bill. If you earn somewhat more than $90,000, the calculation also becomes more complicated.

And I’ve left out a number of smaller details that further complicate the school tax calculation.

To sum up, two-thirds of Vermont homeowners pay a property tax that’s actually determined by their income, with a small adjustment for property values. It’s also based on the total spending in your district, which is not the same as the school budget, and on the number of students, which is not the same as the actual number of students in your school.

I trust you are sufficiently confused to stop reading.

We hear a lot these days about transparency in government. How we actually pay for our schools, and how people’s property tax bills are calculated, is about as far from transparent as you can get. That’s not a good way for citizens and taxpayers to make informed decisions. When people can’t understand how they are paying for a government service, it’s hard for them to be concerned about its cost or quality.

Art Woolf is associate professor of economics at UVM and editor of The Vermont Economy Newsletter.